At a Recent Seminar You Stated That the Yield on a Xerox

question 46

Essay

At a recent seminar you stated that the yield on a Xerox corporate bond was 9.2 percent whereas the yield on the Chrysler stock was 3.6 percent. An attendee has concluded from this statement that the Xerox bond is a far better investment than the Chrysler stock. How do you respond to this conclusion?

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Definitions:

Incremental Sales

Additional sales generated by a specific business activity or decision, beyond what would have occurred normally.

Operating Expenses

Expenses incurred from the normal operations of a business, excluding the cost of goods sold.

After-Tax Discount Rate

The interest rate used in discounted cash flow analysis that accounts for the impact of taxes on the rate of return.

Income Tax Rate

The share of an individual's earnings that is paid to the government as a tax.